The arrival of China’s first e-learning unicorn comes after the Chinese government abolished its ‘one-child policy’ in 2015 and amid advances in online streaming technology.
After several years of sector consolidation due to high-startup costs, stock analysts see industry leaders grabbing market share, supported by stronger brands and standardised products geared towards helping tiger moms push their children through China’s college entrance exam.
“We are strong believers in the wider adoption of online learning with the growing number of internet-savvy young parents,” said Yong Li, chief executive officer of Yuanfudao in a press release.
China’s online education sales hit Rmb156.02 billion ($22.8 billion) in 2016, up 27.3% year-on-year. The number of online education users totaled 90.01 million in 2016, rising 21.5% from the previous year, according to China online data provider iResearch.
iResearch forecasts revenue hitting Rmb269.26 billion and 160 million users by 2019, driven by the release of more online educational products and parents’ growing trust in online education.
While the market’s growth is unquestionable, it has been a struggle for many online tutors to carve out a profitable niche. Some have floundered due to the high upfront investment needed to develop curricula, build the platform and market the service to students and teachers.
No more than 5% of online education companies turned a profit in 2015, said Lyu Senlin, head of the China Online Education Research Institute, citing his own book published last year.
Other private equity firms have invested in China’s educational market. DCM funds and Sequoia invested $20 million in China Online Education Group, which listed on Nasdaq last year. KKR said on June 2015 it was investing in Tarena International, a provider of professional education services in China.
The Canada Pension Plan said on April 25 this year that alongside Baring Private Equity Asia it would privatise a Hong Kong-domiciled provider of premium education services, Nord Anglia Education, for $4.3 billion, including the repayment of debt.
Creating Math Olympiads
Founded in 2012, Yuanfudao is an online live course platform servicing students from kindergarten through to 12th grade (K-12) in China.
With a paying user base of over 1 million, Yuanfudao offers a curriculum spanning primary school English, Mathematical Olympiad to all-subject courses in secondary school.
“Unlike the traditional tutoring model, which requires intensive offline resources, online learning is becoming a primary choice of Chinese families,” said Gordon Ding, a managing director of Warburg Pincus.
Yuanfudao has previously received financing from IDG Capital, Matrix Partners China, New Horizon Capital, CMC and Tencent.
Since entering the Chinese market in 1994, Warburg Pincus has invested over $7 billion in nearly 100 companies in China, including leading technology and internet companies 58.com, RDA Microelectronics, Uxin, Liepin and Weidian.